a guide for the pro se creditor in a bankruptcy case - District of ...

a guide for the pro se creditor in a bankruptcy case - District of ...

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23 speaking, the debtor's creditors are paid from nonexempt property ofthe estate. The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor's nonexempt assets in a manner that maximizes the return to the debtor's unsecured creditors. The trustee accomplishes this by selling the debtor's property if it is free and clear of liens (as long as theproperty is not exempt) or if it is worth more than any security interest or lien attached to theproperty and any exemption that the debtor holds intheproperty. The trustee may also attempt to recover money or property under the trustee's "avoiding powers." The trustee's avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before the petition; undo security interests and other prepetition transfers ofproperty that were not properly perfected under nonbankruptcy law at the time ofthe petition; and pursue nonbankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law. In addition, if the debtor is a business, thebankruptcy court may authorize the trustee to operate the business for a limited period of time, if such operation will benefit creditors and enhance the liquidation ofthe estate. 11 U.S.C. § 721. Section 726 ofthe Bankruptcy Code governs the distribution oftheproperty ofthe estate. Under § 726, there are six classes of claims; and each class must be paid in full before the next lower class is paid anything. The debtor is only paid if all other classes of claims have been paid in full. Accordingly, the debtor is not particularly interested inthe trustee's disposition ofthe estate assets, except with respect to the payment of those debts which for some reason are not dischargeable inthebankruptcy case. The individual debtor's primary concerns in a chapter 7 case are to retain exempt property and to receive a discharge that covers as many debts as possible. The Chapter 7 Discharge A discharge releases individual debtors from personal liability for most debts and prevents thecreditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope ofthe discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party ininterest files timely a complaint objecting to the discharge or a motion to extend the time to object, thebankruptcy court will issue a discharge order relatively early inthe case – generally, 60 to 90 days after the date first set forthe meeting ofcreditors. Fed. R. Bankr. P. 4004(c). The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order ofthebankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property ofthe estate; or failed to complete an approved

24 instructional course concerning financial management. 11 U.S.C. § 727; Fed. R. Bankr. P. 4005. Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certainsecured property (such as an automobile), he or she may decide to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and thecreditor that the debtor will remain liable and will pay all or a portion ofthe money owed, even though the debt would otherwise be discharged inthebankruptcy. In return, thecreditorpromises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. 11 U.S.C. § 524(c). The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures described in 11 U.S.C. § 524(k); see also Local Rule, Official Local Form 6. Among other things, the disclosures must advisethe debtor ofthe amount ofthe debt being reaffirmed and how it is calculated and that reaffirmation means that the debtor's personal liability for that debt will not be discharged inthebankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance ofincome paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement. Unless the debtor is represented by an attorney, thebankruptcy judge must approve the reaffirmation agreement. If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor ofthe legal effect and consequences ofthe agreement, including a default under the agreement. The attorney must also certify that the debtor was fully informed and voluntarily made the agreement and that reaffirmation ofthe debt will not create an undue hardship forthe debtor or the debtor's dependents. 11 U.S.C. § 524(k). The Bankruptcy Code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating ofthe agreement, or if the court disapproves the reaffirmation agreement. 11 U.S.C. § 524(d) and (m). The debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists. 11 U.S.C. § 524(f). An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to theproperty of another entity, debts for death or personal injury caused